2012 (9) TMI 896 - HC - VAT and Sales Tax

Summary

Issues involved: Interpretation of service charges collected on food and beverages, determination of whether service charges form part of sale consideration, applicability of KVAT Act 2003 on service charges.

Summary:
The respondent/assessee filed returns for the assessment year 2005-06 to August 2009, disclosing collection of service charges at 10% on food and beverages supplied. The contention was that the service charges were not part of the sale price but collected as tips and for damage to items. The AO considered the amount as part of the sale price, leading to tax imposition. The Appellate Tribunal, however, viewed the amount as post-sale expenditure and not part of the sale price. The State challenged this decision through revision petitions.

The substantial questions of law raised were:
1. Whether service charges collected at 10% on food and beverages constitute sale consideration and are liable to tax under the KVAT Act?
2. Whether service charges separately indicated in the invoice, on which service tax is levied, are subject to taxation under the KVAT Act?
3. Whether the Tribunal correctly applied relevant legal judgments?

The respondent provided a statement showing the collection and distribution of service charges to waiters and for damages. The Government Advocate argued that the term "service charges" could mislead customers and that the AO had not scrutinized the material adequately. The Court found the AO's decision flawed and remanded the matter for fresh scrutiny to determine if the service charges were part of the sale price and if the assessee could claim tips on behalf of staff. The Court also directed the Appellate Authority to assess if the collection was a disguised form of Service Tax and to provide the respondent- assessee with a fair opportunity.

As a result, the revision petitions were allowed, and the matter was remanded for further assessment.